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China's auto industry shifts into high gear

Partnerships with West have given it needed technology; now it's the world's biggest car market, having passed the US this year.

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Fiat recently became the latest car company to do so by signing an agreement with Guangzhou Automobile Industry Group to set up a factory in China, which marks Fiat's return to China after earlier failures for the Italian carmaker.

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China's carmakers are also looking beyond national borders. Industry giant Beijing Automotive expressed interest in the core of GM's European business, Opel, but then dropped out of the bidding.

An obscure company in western China, Sichuan Tengzhong Heavy Industrial Machinery Co., is in advanced talks with GM to buy the Hummer brand, though the deal requires final approval from Beijing. And private Chinese carmaker Geely Automobile is interested in buying Volvo from Ford Motor Co.

Whatever deals come to fruition, one issue is whether Chinese companies can successfully integrate foreign brands.

"To buy some of the technology, that's a very good way to acquire know-how," says Yale Zhang, director of Greater China for CSM Worldwide, an automotive consultant. "To buy a complete vehicle brand or company – that is very different. There's a lot more risk."

Shanghai Automotive has stumbled in its quest to build a global company despite success at home. It became the first to operate abroad after buying a majority stake in Ssangyong Motor in 2004, but the South Korean company is now in bankruptcy proceedings, and police dramatically stormed its plant to take it back from occupying workers, ending a 77-day strike last month.

Shanghai Automotive also launched its Roewe brand in 2006 based on technology purchased from Britain's now-defunct MG Rover, but has found only a niche market.

Mass exports by Chinese carmakers to developed countries will come eventually, but the biggest and most appealing market is at home, where foreign brands still dominate the high end of the market.

Chinese companies might excel at building environmentally friendly vehicles, such as hybrids or electric cars, which the government has made a priority by granting subsidies and requiring schools to train engineers in the technology. All major Chinese automakers have projects for hybrid or electric cars, some of which are already in production.

The growing market, government support, and foreign partnerships have created an environment unlike anywhere else in the world.

Says Ms. Combs of GM: "For the future, a lot of innovation and breakthrough will have the opportunity to come to market in China much more quickly."•